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The Stimulus Package In Graph Format

See the graphic…Funny that if you look at the timeline, the cash spent / economic benefit does not really seem to kick in until 2011/2012…just in time for… the next election. Everything targeted for 2009 seems to be benefits for the unemployed which just generate deficit and debt. A friend also commented that the balloon format of the graphic is appropriate given the plan is full of hot air.

The way I see it, we may get benefit in 2009 as long as they can use their $1 Trn- $2 Trn package to clean up the financials balance sheets adequately, not making them get more geared. Even if the absolute value right now (MTM) of the liabilities is $20 Trn, taking it out of the public markets helps only moderately, because the liabilities value in my view is likely to depreciate, not appreciate, and in turn will come back to haunt the economy via taxes.

By the way, $825Bn is just a drop in the ocean compared to the loss of 40% of the securitization market, loss of hundreds of billions in annual interest bearing capacity of SIV’s, CLO’s etc… that are now gone… And the complete destruction of wealth for US consumers from dual housing and stock market declines, now estimated at $9 T. Meanwhile, the first Baby Boomers are hitting 65.

What Obama will not do (or any other Government) and should: Bulldoze unwanted/unsold housing stock and tighten that market… Everything else will follow; psychology, massive injection of new credit/capital into housing stock, refinanceability of existing CDO’s with a return of bids, on and on. Housing got the world into this problem. That is where we need to focus. That is where we will likely not. Everything else is a sympathetic symptom.

Daniel Lacalle

Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Author of bestsellers "Life In The Financial Markets" and "The Energy World Is Flat" as well as "Escape From the Central Bank Trap". Frequent collaborator with CNBC, Hedgeye, Wall Street Journal, El Español, A3 Media and 13TV. Holds the CIIA (Certified International Investment Analyst) and masters in Economic Investigation and IESE. Siga leyendo.